Mc, Other/Just Looking in Houston, TX

What is the difference between FHA and Conventional Loan?

Asked by Mc, Houston, TX Tue Aug 26, 2008

Also, if I put less than 20% downpayment, do I need to pay PMI in FHA? What abt conventional loan?

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Tommy Burris, Mortgage Broker Or Lender, Baton Rouge, LA
Tue Aug 26, 2008
FHA is Gov't backed... and the higher 'Loan-to-Value' (LTV)deals do not experience an adjustment for those.
FHA has different loan limits.
PMI is less on FHA than Conventional for the higher LTVs.
Some properties will not be eligible for FHA that Conventional may take.
FHA has a minimum of 5yrs for PMI. Regardless of how much you put down.
No PMI on an FHA loan with 10% down and 15yr term.
And the list goes on, and on, and on.
The best thing to do is have a loan officer who does BOTH loans do a comparative analysis of both loans on YOUR deal.
Yes, pmi is mandated on conventional with less than 20% down.

Do you have a realtor? Have them refer you to a loan officer who can do both loans....
Feel free to contact me for any follow up to this or any other question without a sales pitch.
Good Luck!!!
3 votes
Www.LenderPo…, , Los Angeles, CA
Wed Aug 27, 2008
FHA is the new Conforming. FHA is Government backed so they have less restrictions and banks like them because if a loan goes bad the Gov with pay-up.
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1 vote
T.E. & Naima…, Agent, Dallas, TX
Wed Aug 27, 2008
The Federal Housing Administration (FHA) offers a guarantee to banks who write loans that conform to their guidelines. Because the bank is guaranteed to be repaid in case the borrower has problems, the banks are willing to offer loans to people that might not otherwise be able to get a conventional loan.
A conventional loan is offered by a bank without any guarantee of repayment from a government agency. Typically, these loans carry private mortgage insurance (PMI), which insures the bank in case of non-payment by the borrower for amounts over 80% of the property value. So, if the lender loans 95% of the value of the property, the private mortgage insurance covers them for 15%.
Conventional loans had been the loan of choice until the recent problems in California, Nevada and other places where the loans are not being repaid and the property values have dropped below the loan amount. Now, FHA is more favored because the risk to the bank is lower. The rates for both are similar.
Conventional loans typically are for 80% of the property value. A borrower can get an additional second loan to cover another 10% 15% or even 17%, making the combined loan-to-value ration equivalent to FHA's 3% down. Some conventional lenders also offer a single loan, rather than two loans.
FHA currently requires the buyer to bring at least 3% of his own funds to closing. This will rise to 3.5% at the end of September. FHA-guaranteed loans also have a mortgage insurance premium (MIP), similar to PMI. The MIP can be added onto the loan instead of being paid as a closing cost.
There are other types of loans, too, such as VA or Texas Vet and others. Each has their own advantages and costs.
Remember that buying a house is a little like buying a car. A car price may be quoted as +TTL (plus tax, title and license). Your house will have additional closing costs, like title insurance, survey, lender fees and so on, plus you will have to pay for your homeowner's insurance and put some money aside for property taxes, called prepaids. When someone buys a $100k house with 3% down, they wind up bringing more than $3000 to the closing because of the closing costs and prepaids.
A loan officer can explain in more details how it all works. Just ask.
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1 vote
Bob McClure, Other Pro, Walled Lake, MI
Wed Aug 27, 2008
good morning....fha is a conventional loan.....hud (federal gov't.) serves as the pmi company for fha's.......need more info?...i'll be glad to discuss......bob mcclure- mortgage now- farmington, michigan.....almost 14 yrs. experience....licensed in 19 cell (248) 974-4444.....
1 vote
Sharon Parker, Agent, Sugarland, TX
Tue Aug 26, 2008
Hi Mc, good question. FHA is a loan that is for first time buyer that is backed up by the (Gov)loan and you have to come with 3% in closing cost ,show that you have money to buy,and you have a escrow account that helps you save your money for taxes, ins on your home. Coventional is a loan that is for a buyer that is a buyer that understand about loan and how they work because their is about 200 types of loans. I f you would like will be glad to set down and go over a lot more with you. Call me at 281-914-6022.
1 vote
Zeolilly, Home Buyer, Fort Worth, TX
Wed Jul 22, 2015
The downside is the MIP premium that now will be there for the life of the loan.

But you are forgetting one BIG advantage of FHA over conventional and in my opinion it is going to be a BIG deal in the years to come. FHA is assumable. In a few years when rates are at 8-9-10%, and they will be, assuming a loan at 3.5% is going to bring people to their knees. Sure, the buyer will need to put a large down payment down to assume it, basically the equity in the house, but there will be many people willing to do that.

A loan officer can explain in more details:
0 votes
Joan Long, , Tucson, AZ
Tue Aug 26, 2008
Although I am not a lender, working with buyers throughout the years has educated me a great deal about the loan process. I'm happy to share what I've learned.

Over the past several years, conventional loans were so attractive with 100% financing, etc., that FHA loans were not needed as much and had taken a "back burner". Over the past few months, FHA loans are gaining popularity once again.

Generally, the most apparent difference is that FHA requires less money down. In some cases as little as 3%. Also, FHA likes to know that the home you are buying is in good condition. Therefore, it may be hard to get an FHA loan on a home that needs lots of work. FHA underwriting conditions may seem more strict than a conventional loan, i.e. a leaner paper trail of your money in and money out,

However, with all the foreclosures coming to light over the past several months, conventional loan conditions seem to be just as strict and in some cases more so than FHA. Generally, in today's market, conventional lenders are requiring 10-20% down, depending on your credit. You may be able to find an investor that will take 5% down with excellent credit.

It's my experience that PMI is required with less than 20% down on a conventional loan. As for PMI on FHA loans, I'm not certain however, I'd venture to say that it would apply the same as conventional. I would be happy to verify that for you should you'd like to inquire with me further.

"I Love What I Do!"
Joan Long, Realtor
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